The Analysis of Funding Plans

Benjamin Friedrich and Pilar Gutierrez

Banks have to manage their ability to fund increases in their assets and meet obligations as they come due, without incurring unacceptable losses. Banks fund themselves through a wide range of instruments, from both retail and wholesale sources. Retail sources are mainly comprised of customer deposits, predominantly from households, while wholesale sources include both short-term instruments (such as interbank loans, repos and commercial paper, and certificates of deposits) and long-term instruments (such as bonds, both secured and unsecured, and securitisations). Besides, banks have access to central banks’ funding (monetary policy operations) and can also raise capital.

Sources of funding and funding structures of credit institutions have evolved in a very different pattern compared to the pre-crisis funding features. Important imbalances of banks’ pre-crisis ways of funding themselves first became evident in the outbreak of the financial crisis and then subsequently in the sovereign crisis. Banks suffered significant shocks to their funding models in terms of market access and cost. In addition, an overreliance on wholesale short-term funding in the context of cheap money